Lean-Case Metric Definitions

Metrics are crucial in successfully planning and evaluating the performance of a business. Lean-Case uses two basic financial concepts:

Unit Economics – How much money you are making on each item you sell? and
Business Profitability – How profitable is your overall business?

Unit Economics

Applying Unit Economics involves looking at the following metrics:

Revenue – the money customers pay you for products and services you sell
Cost of Goods Sold (CoGS) – how much it costs (in materials, etc) to make each unit you sell
Gross Profit – the difference between the revenue and cost of goods sold (expressed in terms of percentage of revenue, Gross Margin). The higher your gross margin, the higher the lifetime value of your customer.

Example - how to ..

So if you sell a product for $100, and it costs you $15 to make each one,
you have a Gross Profit of $85 or a Gross Margin of 85%.

Customer Acquisition Cost – how much it costs to acquire a customer. This is the sum of the Cost of Selling (e.g. Salaries for your Sales Team, Commission for your Partners, ..) and the Cost of Marketing (Cost of creating Leads and converting them into paying customers)
Net Profit – the difference between the gross profit and customer acquisition cost (expressed in terms of percentage of revenue, Net Margin)

Example - continued ..

if your cost to acquire a customer is $45,

you have a Net Profit of $40 per unit sold or a Net Margin of 40%.

Business Profitability

To understand Business Profitability we have to take into account

Operating Expenses(OpEx) – how much it costs to run your business over a period of time, typically this includes cost categories like Sales & Marketing (S&M), Research & Development (R&D), and General & Administrative (G&A). Opex can be fully tax-deducted in the same year in which the expenses occur.